Bloomberg’s Offshore Millions

It was a dark time for the city. In 2008, and early into the next year, morale was low, Wall Street was sputtering and Mayor Michael Bloomberg was steeling New Yorkers for pain. Brace for service cuts and tax hikes, he warned—while also pledging to find a way to keep tax money, particularly from the city’s richest citizens, from fleeing.

“I’ve said this before, but the first rule of taxation is, you can’t tax too much those that can move,” Mr. Bloomberg intoned on a radio show late in the crisis. “You know, we’re yelling and screaming about the rich. We want the rich from around this county to move here. We love the rich people.”

And yet the richest New Yorker of them all—Mr. Bloomberg himself—had been ignoring his own advice.

According to an extensive review of the mayor’s financial records by The Observer, even as Mr. Bloomberg was trying to counter the loss of taxes and other income from the richest New Yorkers, the foundation he controls was in the process of shuttling hundreds of millions of dollars out of the city and into controversial offshore tax havens that would produce nothing at all for the city in terms of tax revenue.

By the end of 2008, the Bloomberg Family Foundation had transferred almost $300 million into various offshore destinations—some of them notorious tax-dodge hideouts. The Caymans and Cyprus. Bermuda and Brazil. Even Mauritius, a speck of an island in the Indian Ocean, off the coast of Madagascar. Other investments were spread around disparate locations, from Japan to Luxembourg to Romania.

‘I’ve never seen anything like it. It’s about as opaque set of investments as you can find,’ said Rich Cohen, who covers foundations and charities for Nonprofit Quarterly.

Why was the mayor’s flagship foundation sending hundreds of millions of dollars offshore? Neither the charity nor the mayor will explain. What is clear is that the issue could get prickly for Mr. Bloomberg, in part because his investment strategies have been so closely associated with Steve Rattner, the onetime boy wonder financier who remains under investigation by Attorney General Andrew Cuomo for his involvement in a state pension controversy. Last week, Mr. Rattner’s former firm, Quadrangle Group, took the extraordinary step of excommunicating him, saying in a statement that it “wholly disavow[ed]” Mr. Rattner over his role in securing state pension contracts—conduct the company called “inappropriate, wrong, and unethical.”

On December 26, 2007—the same day that the city’s Conflicts of Interest Board opened the door for Mr. Rattner’s firm to manage the foundation’s money— the foundation immediately sent $210 million to a new fund—“QAM Select Investors (Offshore) Ltd.”—based in the Cayman Islands.

A month later, the foundation was given clearance to allow two city workers to use municipal time and resources on foundation work—on the assumption that the charity would “ultimately serve the city” and “further the interests and purposes of the city.”

And what of the benefit that was supposed to come New York’s way as a result of all of these millions? Mr. Bloomberg donated more than $1.8 billion to the foundation in its first three years of life, according to the foundation’s tax filings. About $67 million—$36 million in 2007 and $31 million in 2008—was given away. Much of it went to anti-smoking initiatives, including the World Lung Federation and an Indian anti-smoking group; other grants went to the government of Vietnam and the World Health Organization, for injury-prevention efforts. No grants went to organizations directly benefiting New York City.

Today, at a five-story Beaux Arts mansion on the corner of 78th Street and Madison, workers are putting the finishing touches on the foundation’s new headquarters, which Mr. Bloomberg purchased for $45 million. Flatbed trucks unload marble tiles for the building’s floors; electricians have installed subdued lighting and a heavy, automatic glass sliding door.

Several weeks ago, the foundation named a new 19-person board that reads like a who’s who of national politics and finance: Former Florida governor Jeb Bush, former Georgia senator Sam Nunn and former Treasury secretary Hank Paulson are among the members. It is all part of a push by Mr. Bloomberg to put the foundation on a par with other big charities and put his name on the list of America’s great philanthropists: Gates, Carnegie, Rockefeller and Ford have their foundations, and now so does Bloomberg.

BEYOND THE U.S. BORDER, in places like the Caymans, the climate for charities is much more inviting. Nonprofits like the Bloomberg Family Foundation are tax-exempt, but some investments that aren’t related to an organization’s core mission can be subject to a levy called the Unrelated Business Income Tax (UBIT, for short). So to avoid more than 40 percent in federal and local taxes on unrelated businesses, nonprofits use a legal loophole, routing investments through offshore tax havens.